For London to retain its position as a global city and an investment hub, it would be in everyone’s interests to promote entrepreneurship in high-growth, high-innovation sectors. Emerging technologies will boost economic growth, reduce inequality, and change the way that consumers access services. Already, FinTech tech start ups have disrupted the bricks and mortar banking industry, and are now fostering much greater participation in financial markets.
London today is one of the best places in the world to be an entrepreneur. The US-based research firm Startup Genome recently priced the UK capital’s startup ecosystem as the largest in Europe, with a total value of 142.7 billion USD. London is currently home to over 1,370 venture capital firms – more than any other European city, providing access to a vast network of investors and a depth of capital in the ecosystem.
Neil O’Brien, the Minister for Levelling Up, explained the government’s aim: “To empower local leaders and communities. To grow the private sector and raise living standards – particularly where they are lower. To spread opportunity and improve public services, particularly where they are lacking. And to restore local pride… backing community life.”
These aspirations leave a significant role for entrepreneurship and investment. If we want London to serve as a global hub for startup capital, then investors must work at building a universally inclusive entrepreneurial ecosystem.
We can start by ensuring we are not excluding half of our talent pool on the basis of gender. Female founders have reported discrimination when trying to raise equity finance, and female-founded companies account for only 15% of funding. HM Treasury estimates that barriers to female entrepreneurship account for approximately 1.1m missing businesses, and a £250bn opportunity for the economy.
This imbalance is uneven across sectors. A report from the London-based Entrepreneurs Network shows that female entrepreneurs in FinTech receive a proportionate amount of equity funding as their male counterparts. In GreenTech, they raise more than half. However, in strategic deep-tech sectors of AI, Life Sciences, and E-Commerce women receive only 1.9%, 4.5%, and 3.1% of equity finance respectively. How can we close these gaps?
Funders, like other stakeholders in the economy, should learn best practice from organisations that have reaped rewards from overcoming biases. This is a monumental task that cannot be achieved without strategic public partnerships. Indeed, flagship policies surrounding entrepreneurialism are increasingly dependent on PM Boris Johnson’s ‘high wage, high skill, high productivity’ plan for the economy.
It’s a good idea to put entrepreneurialism at the heart of the economic ‘levelling up’ agenda. Although the costs associated with starting businesses have fallen across the board, tech start-ups face significant barriers when raising finance as unlike established competitors they are not able to provide trading histories or offer collateral. This forces investors to carry out costly due diligence reducing the viability of smaller investments, creating an SME equity funding gap.
This gap is compounded in disadvantaged communities. The market is well-equipped to reward emerging talent, but it’s easy for talented people from backgrounds that are not associated with starting businesses to fall through the cracks. More than four-in-ten (43%) of respondents within London’s three most deprived boroughs in a recent survey had a business idea but lacked the economic or social capital to achieve it. Effective support needs to target both financial and confidence barriers.
Crowdfunding and P2P lending, alongside established public markets for early stage firms such as the Alternative Investment Market (AIM) have helped democratise access to funding. However, regulators can work to ensure these alternatives are free to expand and support more investment in start-ups. The City of Sydney has led the charge on this front, providing generous grant schemes for local businesses in disadvantaged neighbourhoods to ease access to entrepreneurial support, business skills and investment opportunities which target tech start-ups in their communities.
Investors constantly optimise for success factors, and talent remains key. London has had historic success as a start-up centre thanks to Europe’s world-class consortium of research universities that produce a diverse pipeline of talent indispensable to emerging technology sectors. Brexit has slowed this pipeline down. It has also failed to retain female talent.
At school, just under 40 per cent of Maths A-level students are girls, but a ‘leaky pipeline’ means that only 17 per cent of UK workers in tech are women. A lack of balanced representation in STEM subjects and on female founders in the media may mean that girls don’t see a future in the sector. It’s time for the British university system to play a lead role, both in terms of ensuring there is equal gender balance as well as via the direct feeding of talent into strategic tech sectors which demand specialist knowledge. In Sweden, the Stockholm School of Entrepreneurship is deeply embedded in meeting governmental policy goals, helping with R&D commercialisation linkages, incubation, talent/knowledge transfer, and amplifying its strong portfolio of female talent.
Every part of the STEM domestic ecosystem can be optimised to support entrepreneurialism, through innovation and start-up challenges along with incubation programs to encourage aspirant entrepreneurs to start companies in key campuses. There’s nothing stopping the UK from starting this education even earlier, in primary and secondary school. Today’s children will be entering a future economy unbeknownst to us — they need the essential skills capable of growing businesses with technologies not even invented yet. This could mean the inclusion of entrepreneurial education into the government’s national curriculum, or the funding of new mentorship initiatives aimed at disadvantaged youth to help scale businesses and demystify fintech, ensuring a jump start on good ideas that will become great businesses.
In addition, London’s role as a global financial capital has been written on the back of its international network, from immigration to commerce. It’s time that the start-up industry favours this sort of mentality as well, examining possibilities for new immigration pipelines into strategic tech sectors, and attracting foreign talent at a post-university level. Boosting the supply of entrepreneurial talent shouldn’t just be about maximising the number of people who start companies – quality, not quantity, should be key.
Around half of the UK’s fastest-growing startups have at least one foreign co-founder. To reflect this reality, the visa system should be reformed to retain the UK’s status as a top destination for entrepreneurial talent. The UK could take a page out of France’s book. The country has implemented a simplified, fast-track scheme for non-EU startup employees, founders, and investors. What makes it noteworthy, however, is that it doesn’t take into account university degrees in its blind recruitment process.
London’s ecosystem ought to be driven with a future-minded vision to keep up with changing demographics, as well as to solve the ‘productivity puzzle’. Once governed entirely by the City of London Corporation, London would do well to embrace some tactics of a cohesive corporate body to mobilise resources at pace to tackle the specific challenges to its start-up ecosystem as they arise. It is not enough to encourage UK talent and investors to come together. There needs to be a robust economic ecosystem from the very beginning, with the groundwork laid to encourage fintech to work towards equality, rather than against it.